Hello,
Looking for some advice on moving from an umbrella to a Ltd Co. Would be grateful if someone would check my conclusions.
Background: I’m a contractor offering IT related consultancy in the Pharma sector, and have been with the same client for approximately 5 years via an umbrella. For the first two years I claimed travel\accommodation expenses and when it became clear that the contract would go past the two year mark I stopped claiming. Working arrangements mean I’m within IR35. Expenses come out of my own pocket now. I live away from home Mon-Fri.
The end client I contract for has come up with some new ‘compliance’ policies for subcontractors. One of these is that all contractors must have their own Ltd. Co. Umbrellas are not permitted. The up-shot is that I either form a Ltd. Co. of leave. Current contract is almost expired and they will not renew under an umbrella. I’ve only just found this out.
I’ve done some research into running a Ltd. Co. consultancy and there doesn’t appear to be much of an up-side given legislation of the last 10 years; IR35 & dividend tax.
1. If I did form a Ltd. Co. I’d still have to declare (nearly) all company income as salary to be within IR35. I assume the accountant is a valid expense.
2. I’d have to pay an accountant.
3. I have to pay for public liability insurance and IPSE membership to help fight any HMRC investigations or fishing expeditions.
4. I’d have to pay a lawyer to review all new contracts.
At the moment the umbrella takes about 27.50 a week to do the payroll. Everything else is taxed under PAYE – so I pay a lot of tax but I’m OK with that given I don’t have all the above hassle with paperwork. If points 1 to 4 come to less than this then it’s a zero sum financial proposition.
There are many salary calculators out there (making all sorts of assumptions) but I’m having difficulty seeing how there would be less tax under a Ltd Co if you’re inside of IR35. Nearly everything your company makes would end up as salary – and if that’s the case then I’ll be paying almost the same tax as I do now under the umbrella.
The other part I’m not sure about is leaving the umbrella having only completed one assignment with them. I was aware when I joined that any accommodation\travel expenses would only be legal if I ended up running multiple assignment through the umbrella. This was as is still the case, it’s just taken 5 years to finish the first assignment - a long contract I know.
If I leave to set up a Ltd. Co. then would I have to pay all the expenses back?
If that is the case then forming a Ltd. Co. is a non-starter. I asked my umbrella about this and they told me any issue with expenses was between HMRC and myself.
Any insights on the above appreciated,
Thanks.
Looking for some advice on moving from an umbrella to a Ltd Co. Would be grateful if someone would check my conclusions.
Background: I’m a contractor offering IT related consultancy in the Pharma sector, and have been with the same client for approximately 5 years via an umbrella. For the first two years I claimed travel\accommodation expenses and when it became clear that the contract would go past the two year mark I stopped claiming. Working arrangements mean I’m within IR35. Expenses come out of my own pocket now. I live away from home Mon-Fri.
The end client I contract for has come up with some new ‘compliance’ policies for subcontractors. One of these is that all contractors must have their own Ltd. Co. Umbrellas are not permitted. The up-shot is that I either form a Ltd. Co. of leave. Current contract is almost expired and they will not renew under an umbrella. I’ve only just found this out.
I’ve done some research into running a Ltd. Co. consultancy and there doesn’t appear to be much of an up-side given legislation of the last 10 years; IR35 & dividend tax.
1. If I did form a Ltd. Co. I’d still have to declare (nearly) all company income as salary to be within IR35. I assume the accountant is a valid expense.
2. I’d have to pay an accountant.
3. I have to pay for public liability insurance and IPSE membership to help fight any HMRC investigations or fishing expeditions.
4. I’d have to pay a lawyer to review all new contracts.
At the moment the umbrella takes about 27.50 a week to do the payroll. Everything else is taxed under PAYE – so I pay a lot of tax but I’m OK with that given I don’t have all the above hassle with paperwork. If points 1 to 4 come to less than this then it’s a zero sum financial proposition.
There are many salary calculators out there (making all sorts of assumptions) but I’m having difficulty seeing how there would be less tax under a Ltd Co if you’re inside of IR35. Nearly everything your company makes would end up as salary – and if that’s the case then I’ll be paying almost the same tax as I do now under the umbrella.
The other part I’m not sure about is leaving the umbrella having only completed one assignment with them. I was aware when I joined that any accommodation\travel expenses would only be legal if I ended up running multiple assignment through the umbrella. This was as is still the case, it’s just taken 5 years to finish the first assignment - a long contract I know.
If I leave to set up a Ltd. Co. then would I have to pay all the expenses back?
If that is the case then forming a Ltd. Co. is a non-starter. I asked my umbrella about this and they told me any issue with expenses was between HMRC and myself.
Any insights on the above appreciated,
Thanks.
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